Shale cash gusher sees EOG join $1 billion-a-quarter club

HOUSTON (Bloomberg) -- The well-heeled, buttoned-down world of international oil now has competition from cowboy boots and jeans. 

EOG Resources Inc.’s $1.1 billion in third-quarter adjusted net income vaulted the biggest American shale driller into the same league as Italian oil giant Eni, ConocoPhillips and Occidental Petroleum and ahead of Spain’s Repsol. But there’s one major difference: EOG is growing production at more than 20% a year.

Those veteran operators build multibillion-dollar engineering marvels around the world, have government ministers on speed dial, and operate myriad assets on several continents. It’s not a club typically associated with scrappy shale wildcatters, better known for burning through investors’ cash as quickly as they can drill a well in a Texas dust bowl.

“The period of systematic outspend might be over,” said Irene Haas, a Houston-based analyst at Imperial Capital Group. “EOG is there already but in 2019 a lot of companies are going to be hitting a point where they’re generating pretty substantial cash flow.”

EOG, which hasn’t topped the billion-dollar profit mark in a decade, appears to have reached a sweet spot of surging production and free cash flow. Dividends are up 31% this year. At a time when West Texas Intermediate currently trades at about $60/bbl, EOG says its new wells provide 30% after-tax returns with oil as low as $40.

EOG, which once stood for Enron Oil & Gas, is not alone. Continental Resources, Pioneer Natural Resources and Devon Energy also generated considerable free cash flow in the third quarter. Conoco and Occidental have also made shale one of their key investment targets.

Permian legend Mark Papa, who was a pioneer of U.S. shale as EOG’s CEO from 1999 to 2013, said in an interview last month that he never expected the country’s production to grow as fast as it has: “Not in our wildest dreams did we think it was going to turn out to be numbers like it turned out to be."